Sigma Healthcare (ASX: SIG) has bowed out of the race to acquire Priceline Pharmacy owner Australian Pharmaceutical Industries (ASX: API), leaving an open field to competing suitor Wesfarmers (ASX: WES).
In late September Sigma marginally upped Wesfarmers' bid by two cents per share in a cash-and-scrip deal that would have been worth $774 million, offering an equivalent of $1.57 per share in the group.
Since then Sigma's shares have fallen by around 9 per cent, implying a reduced takeover bid, while at the same time Wesfarmers increased its chances of success via the acquisition of 95.1 million API shares on 7 October.
This gave Wesfarmers an almost 20 per cent stake in the company it is trying to acquire outright, and last month the retail, materials and industrials conglomerate announced its intentions to vote against any Sigma deal.
With the writing seemingly on the wall, the board of Sigma today announced that even though they felt their merger proposal was very strong with claims of $45 million in annual operational synergies, it has put an end to the process.
"Sigma believed it made economic, commercial and strategic sense to pursue the merger proposal between Sigma and API on the terms we presented," Sigma chairman Ray Gunston said.
"However, after further assessment, and in the context of the competitive bid process with its changing transaction and economic considerations, Sigma has made the decision not to proceed with this current proposal.
He said Sigma remained confident in its growth prospects without a merger with API.
"The Sigma team will keep on working to finalise the completion of our infrastructure upgrade, including our ERP project, and to remain focused on leveraging our infrastructure to create greater shareholder value," Gunston said.
"Notwithstanding some short-term challenges in the current year, we believe the Sigma business base provides a positive longer-term outlook.
"Sigma’s investments in its operations, and its strong balance sheet and future cash generation, underpin the future strategic directions that will be shaped under the leadership of our new CEO Vikesh Ramsunder from February 2022."
SIG shares rose 2.75 per cent this morning to reach $0.56 each just before noon, while API shareholders were relatively undeterred by Sigma's withdrawal with their shares down just 0.2 per cent at $1.507 each.
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